Moaning becomes Electra: The Investment Column

Electra Investment Trust is puzzled that its shares trade at a 19 per cent discount to net asset value while 3i is at a 5 per cent premium. Both are that rare breed of trust specialising in venture capital investments and put most of their money in unquoted stocks.

There are differences that explain part of the discrepancy. 3i is bigger, and is in the FTSE 100, so it has to be a component of indexed portfolios, unlike Electra, which has not had much of a recent flow of new investors. 3i is also largely a UK business, while much of Electra's investment is in the US.

3i's performance has been less volatile in the past because it has a spread of several thousand investments against a couple of hundred at Electra, which the market therefore regards as making it a worse bet in any future recession. The trust is just that little more dependent than 3i on continued steady growth of the economy.

There are also the first signs of overheating in the venture capital market, with some prices becoming silly, which might affect the larger deals in which Electra specialises rather more than 3i.

Yet this cannot explain the whole of the difference in the discount at which the two shares are trading, especially after yesterday's full-year results for Electra, which show an 18.5 per cent increase in net asset value to 522p a share, half as much again as the increase in the all-share index. Michael Stodddart, Electra's chairman, can boast of being well ahead of the index over both three and five years.

In the latest year, the dividend rose 11.3 per cent, partly because of a new accounting standard that forces investment trusts to split management expenses and interest equally between capital and revenue accounts. The double-digit increase is a one-off, but Mr Stoddart promises a more progressive dividend policy. He is campaigning for a rerating of the shares, has arranged for private investors to buy them through Fleming Investment Trusts Share Plan (Fleming is half-owner of Electra's management company) and he is promoting the stock to new institutions. The shares rose 5p to 425.5p. On these figures, he is right that the discount to net asset value is still unjustifiably large. Good value.